Catherine Shepherd – Blue skies? Sunshine? Millions of people in Malaysia and Indonesia have a hard time remembering what that looks like. After months of persistent smog, the hospitals are full of patients with breathing problems, productivity is down and tourists are turning away in droves. Every year, smoke from man-made forest fires in Indonesia envelops parts of Malaysia and Singapore in a cloud of gas and ash. It was unpleasant, but life went on. This time, it's different. The air is the worst it has ever been.

The haze has turned into a foul smog so thick that airports in the East Malaysian state of Sarawak have had to be closed. Stranded travelers in Kuching jammed the switchboards at airline offices. Prime Minister Mahathir Mohamad declared an emergency in the state, closing schools and businesses. In Kalimantan and Sumatra, where the fires are raging, conditions are even more atrocious. More than 32,000 people are ill from the polluted air and two have died, say Indonesian officials.

Now the noxious air has spread to where no haze has gone before, including the resort islands of Phuket in Thailand and Palawan in the Philippines. And Manila officials are warning the smog could reach the capital soon. Even faraway Vietnam found the cloud has spread to its airspace.

Indonesian officials lay most of the blame on 176 companies, mostly plantation and timber interests, for lighting fires to clear land or burn off waste on logged sites. The list includes major players such as the Salim group, Barito Pacific, Sinar Mas, ventures linked to wheeler-dealer Mohamad "Bob" Hasan and some Malaysian-owned companies. But the companies reject the accusations: they say it makes no sense to burn their own assets. "The forestry ministry is just looking for scapegoats," claims one executive. Whatever the case, the fires are extensive. Aggravated by a prolonged drought linked to El Ni-o, the "hot spots" are estimated to cover areas the size of Peninsular Malaysia and Sabah combined. Industrial pollution and car exhaust add to the miasma that has persisted in some urban areas since June.

In Singapore, though some students report respiratory complaints, sea breezes whip away much of the haze. Not so in Kuala Lumpur, where air is trapped by a ring of hills. "It is very dispiriting to wake up and see the gray smog outside the window and never see the sun for weeks," says academic Shaharil Talib. The potent mix of sulfur dioxide, nitrogen dioxide and ash has rendered the air nearly opaque in the Malaysian capital. Asthmatics and the elderly have been housebound for days because the pollution has made it unsafe for them to venture outdoors. Still, with an air pollution index (API) usually staying under 200, KL is not suffering nearly as much as Kuching, where levels have shot into the 800s. Any API reading above 500 is considered "hazardous and significantly harmful," according to the U.S. Environmental Protection Agency, which set up the system. More than 5,000 people have been treated for smog-induced ailments in Sarawak. Nationwide, at least 10,000 have been admitted to hospital with complaints such as shortness of breath and severe chest pains.

But it's not just people's health that is hurting. In Malaysia's Johor state, the agriculture department is warning that reduced sunlight will affect crops. Singapore spice trader Ong Siong Kai predicts difficulties with his pepper supply from Indonesia: "The ground is parched and burnt out." The haze has also been blamed for a collision between two cargo ships in the Strait of Malacca last month. Fishermen in Sarawak have been advised not to put out to sea, and now Thais are complaining that poor visibility is hampering fishing in the Andaman Sea.

The pall is choking business too. Some Malaysian-based multinationals are preparing to relocate expatriate families for health reasons. No one wants to stay in the acrid air if they can help it. Inge Bursell, a Kuala Lumpur-based manager for Ericsson, says of an upcoming business trip to Kuching: "I'm not very keen. I don't know if I can fly in, and if I do get in, I may not be able to get out." Tourists booked into East Malaysian resorts have canceled as news of the environmental disaster spreads, and hotels are feeling the pinch.

Travelers like Vera Fuchs, who did not find out about the haze in time, feel "cheated" of a hard-earned holiday. "I'm angry that our travel agent in Munich did not tell us," she says in her Kuching hotel. Another potential victim: the 1998 Commonwealth Games in Kuala Lumpur. Local cyclists already complain of stinging eyes, and golfers have trouble tracking golf balls in the gloom. Top athletes are not likely to set foot in the country under such conditions, much less compete.

With so much at stake, what have governments been doing to solve the crisis? Not enough, it seems. Indonesians are making their feelings known through the Internet. Says one on a newsgroup: "Cough, wheeze. Time to kick some butts, President... Ah Choo... Suharto." A poll by Malaysia's Star newspaper found 93.2% of locals dissatisfied with the official response. On Sept. 21 about 60 people took to Kuala Lumpur streets to protest government inaction.

Mohamed Rahmat, who heads Malaysia's disaster committee, says the government may evacuate Sarawak residents if the air quality continues to deteriorate. It will also declare an emergency in West Malaysia if the API hits 500. For Khoo Kay Kim, a professor at the University of Malaya, such measures are too little and too late. "Forming committees and telling people to stop smoking is not going to help," he says. "You have to attack the source."

Officials have inched forward in that direction: more than 1,000 Malaysian firefighters have arrived in Sumatra to help tackle some of the fiercest blazes. But why have they taken so long to act? Why hasn't there been more urgency? Some whisper of land-clearing by well-connected Malaysian plantation firms and the desire to avoid pressuring businesses reeling from the economic downturn. For a few, the smog has had a silver lining. Makers and distributors of household air purifiers and surgical masks (though ineffective in filtering out tiny suspended particles) have done well. In Kuching, shops are busy as residents stock up on provisions like rice and flour in case the haze disrupts shipping. Drought and the threat of water rationing have also prompted panic buying of bottled water – but preferably not the mineral kind. Local nutritionist Margaret Kuek has found they contain higher than normal levels of impurities. Drink distilled instead, she advises.

Meanwhile, government offices in afflicted parts of Malaysia and Indonesia are operating with only skeleton staff. Is there an end in sight to the regional crisis? Khoo Hong Woo, president of the Singapore Nature Society, is pinning his hopes on the wind: "The northeast monsoon is coming soon and it might turn the haze around."

That may be wishful thinking. Across the causeway in Malaysia, experts believe it may be next May before there will be clear skies over the country.